Structuring of medical business in Ukraine

Medical practice is one of the most striking examples of the professional succession of generations. You can often witness when two or even 3 generations of one family are working at a medical center. That is why our company often deals with support of licensing the family medical business, and in this material we will go over the most characteristic features of its structuring, transfer, obtaining a license, etc.

Business structuring

Most of our clients start working with us to find the organizational form of business.

1) setting up a limited liability company (LLC) or a private enterprise (PE)

Advantages:

• it’s convenient in terms of income distribution between the founders,  joint business management;

it gives one the right to perform all kinds of surgery (including inpatient surgery)

Disadvantages:

• it is necessary to provide for the position of a chief physician, to whom special qualification requirements apply;
• it is necessary to provide for an office of the chief physician in the structure of premises
• a greater number of report forms;
• the risk of total arrest of performance if the license is revoked;

higher payroll tax burden compared to structuring through a sole trader.

2) setting up a group of sole traders 

When structuring a medical family business as a group of sole traders, you need to be prepared for the absence of both the disadvantages. set forth in paragraph 1 and the advantages.

In addition, it is worth to notice other important nuances of activities in this format.

Advantages

a license is obtained individually by each sole trader, and therefore, even in the event of cancellation of one, other family members retain their permitting documents

Disadvantages

• getting each license costs extra (an official fee is paid for each license)
• additional expenses for accounting administration of all participants of the family business
• the need to conclude separate lease agreements for premises / equipment
• limitations on services that can be provided by individual sole traders (each providing services only within their own expertise) *

* - This problem is sometimes solved by cross-employment, when family members are both registered as sole traders and hired be one another. This method is, in most cases, not economically-viable and is only used in exceptional cases.

3) concluding joint venture agreements between sole traders

Shares the advantages of paragraph 2 as well as:

Advantages

• it’s convenient in terms of income distribution between the founders,  joint business management;

Disadvantages

• relatively complex accounting and reporting;
• depending on the number of participants, there may be a relatively high tax rate
• other disadvantages from paragraphs 1 and 2

4) A sole trader with hired workers (when 1 sole trader hires other family members)

Advantages:

• saving on license-related payments;
• saving on accounting administration of business;
• easy to manage.

Disadvantages

• higher tax burden on pay compared to alternative forms
• the risk of total arrest of performance if the license is revoked (other entities with licenses are absent)

It should be noted that although this material covers a family business, the above examples can be applied to structuring a business and non-related persons.

Also, the advantages and disadvantages described above are relative and should be evaluated in each individual situation, and the list is not exhaustive.

Conclusions

Family business is a common medical practice. For work to be the most convenient, it is necessary to structure it properly, for example as:

• a legal entity (LLC, PE, etc.);
• a group of independent sole traders;
• a group of sole traders, operating under a joint venture agreement;
• a sole trader with hired employees.

Each of these options has both advantages and disadvantages.

Equally important in family medical business is the issue of its transfer, which may take many forms, depending on the reasons for the transfer.